New Income Tax Bill Approved to Replace 1961 Act

A Historic Tax Reform

New Income Tax Bill Approved to Replace 1961 Act: The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the New Income Tax Bill, which will soon be tabled in Parliament during the Budget session. This new bill is set to replace the Income Tax Act of 1961, which has been in effect for over six decades. Finance Minister Nirmala Sitharaman emphasized that the updated law will offer a simplified and citizen-friendly approach to direct taxation, aimed at reducing confusion and legal battles.

Simpler and Clearer

The main goal of the new bill is to simplify the existing tax structure. It promises to use clearer language so that ordinary citizens can easily understand their tax duties. The bill is also expected to cut the size of the current tax law in half, making it more concise and reducing the dependency on legal interpretation. This structural change is meant to support smoother compliance and empower individuals with better financial awareness.

Outdated Act to Be Replaced

The current Income Tax Act of 1961 is divided into 23 chapters with 298 sections. Over time, it has become overloaded with amendments and provisions—some of which are now irrelevant, such as those on wealth tax and gift tax, which were removed in previous reforms. The new bill seeks to eliminate these outdated clauses and present a streamlined version aligned with the demands of the 21st-century economy.

Adapting to Modern India

The 1961 law was written during a time when India’s economy and technology were still developing. Today, with widespread digital filing, PAN-Aadhaar linking, and automated data processing, there is a growing need for tax legislation that reflects current realities. The New Income Tax Bill is part of a broader reform agenda to modernise governance and public services.

Neutral Yet Transformative

Importantly, the New Income Tax Bill is revenue-neutral. This means it will not result in higher tax burdens for individuals or businesses. There will be no changes to tax rates through this bill. Any modifications in rates will still be made annually through the Finance Act during the budget process. The aim is purely to improve clarity, reduce disputes, and promote voluntary compliance.

Taxpayer-Friendly Reforms

Taxpayers are likely to benefit from simplified filing procedures, clear guidelines, and fewer disputes with tax authorities. The government hopes that with improved accessibility and transparency in the law, citizens will be more willing to comply with tax rules. This approach supports the long-term goal of building trust between taxpayers and the administration.

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